Research on capital structure determinants: a review and future directions

Purpose - The purpose of this paper is to study the status of studies on capital structure determinants in the past 40 years. This paper highlights the major gaps in the literature on determinants of capital structure and also aims to raise specific questions for future research. Design/methodology/approach - The prominence of research is assessed by studying the year of publication and region, level of economic development, firm size, data collection methods, data analysis techniques and theoretical models of capital structure from the selected papers. The review is based on 167 papers published from 1972 to 2013 in various peer-reviewed journals. The relationship of determinants of capital structure is analyzed with the help of meta-analysis. Findings - Major findings show an increase of interest in research on determinants of capital structure of the firms located in emerging markets. However, it is observed that these regions are still under-examined which provides more scope for research both empirical and survey-based studies. Majority of research studies are conducted on large-sized firms by using secondary data and regression-based models for the analysis, whereas studies on small-sized firms are very meager. As majority of the research papers are written only at the organizational level, the impact of leverage on various industries is yet to be examined. The review highlights the major determinants of capital structure and their relationship with leverage. It also reveals the dominance of pecking order theory in explaining capital structure of firms theoretically as well as statistically. Originality/value - The paper covers a considerable period of time (1972-2013). Among very few review papers on capital structure research, to the best of authors’ knowledge; this is the first review to identify what is missing in the literature on the determinants of capital structure while offering recommendations for future studies. It also synthesize the findings of empirical studies on determinants of capital structure statistically.